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In recent years, home price indices have seemed to proliferate. Case-Shiller, of course, has been around for a long time, but over the past decade, additional measures have been marketed aggressively by Trulia, CoreLogic, and Zillow, just to name a few.

Measuring home prices has taken on an urgency beyond the real estate industry because for many, home price growth has become something of an indicator of the economy as a whole. If home prices are going up, it is assumed, “the economy” must be doing well. Indeed, we are encouraged to relax when home prices are increasing or holding steady, and we’re supposed to become concerned if home prices are going down.

This is a rather odd way of looking at the price of a basic necessity. If the price of food were going upward at the rate of 7 or 8 percent each year (as has been the case with houses in many markets in recent years) would we all be patting ourselves on the back and telling ourselves how wonderful economic conditions are? Or would we be rightly concerned if incomes were not also going up at a similar rate? Would we do the same with shoes and clothing? How about with education?

But in today’s economy, if home prices are outpacing wage growth, then housing is becoming less affordable. This is grudgingly admitted even by the supporters of ginning up home prices, but the affordability of housing takes a back seat to the insistence that home prices be preserved at all costs.

Behind all of this is the philosophy that even if the home-price/household-income relationship gets out of whack, most problems will nevertheless be solved if we can just get people into a house. Once someone becomes a homeowner, the theory goes, he’ll be sitting on a huge asset that (almost) always goes up in price, meaning that any homeowner will increase in net worth as the equity in his home increases.

Then, the homeowner can use that equity to buy furniture, appliances, and a host of other consumer goods. With all that consumer spending, the economy takes off and we all win. Rising home prices are just a bump in the road, we are told, because if we can just get everyone into a home, the overall benefit to the economy will be immense.

Making Homes Affordable with More Cheap Debt

Not surprisingly, we find a sort of crude Keynesianism behind this philosophy. In this way of thinking, the point of homeownership is not to have shelter, but to acquire something that will encourage more consumer spending. In other words, the purpose of homeownership is to increase aggregate demand. The fact that you can live in the house is just a fringe benefit. This macro-obsession is part of the reason why the government has pushed homeownership so aggressively in recent decades.

The fly in the ointment, of course, is if home prices keep going up faster than wages — ceteris paribus — fewer people will be able to save enough money to come up with either the full amount or even a sizable down payment on a loan.

Not to worry, the experts tell us. We’ll just make it easier, with the help of inflationary fiat money, to get an enormous loan that will allow you to buy a house. Thus, rock-bottom interest rates and low down payments have been the name of the game since the late 1980s.

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Because we have allowed ourselves to become a nation of lazy, idle, rentier scumbags; who are happily selling their grandchildren into a life of servitude, just to maintain a certain lifestyle for just a few more years... that's why!

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Perhaps it has something to do with the fact there are owners who are now asset wealthy. Including old woman across the way who bought her house for £5,000 now worth £420,000. And her adult kids will inherit.

All the bosses and my brothers' and sister's workplace having bought their houses for x5 less than what they're worth today. They can MEW if they want to, sell/cash in. Others are blaming banks that some such people are applying for loans to chase bigger contracts, but nasty banks want them to put the security of those houses against the loans they apply for. £800,000 house and 20+ years of HPI.

Perhaps because it's a REAL fact for some (asset wealth), and an excuse giving party on the other.

maybe you misunderstood venger

the bank was perfectly happy to take the risk of lending him £300k

however, it would only do so if the loan was secured on his house (valued at about £800k and mortgage free at the time), it would not accept the £600k machine as security or, in fact, the whole balance sheet of the company (about £4m at the time)

the bank regarded security on his house as being better than the security on high quality productive assets - even though the replacement cost of the productive assets was 5x more than the replacement cost of the house

moreover, the rent on the £800k house would have generated about 3% yield (£24k), yet the business was throwing off about £325k per year of after tax cash

the bank representative didn't demonstrate any appreciation of the fact that the £800k house and 20 years of honest living had been paid for by the business

the story is an illustration of just how bonkers about housing the UK banking system is

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The whole article is about the mindset you abhor, it shows its weakness and its ultimate fallacy.

Equity cant be spent until it is either borrowed against or bought with cash.

Its not bankers being blamed because you think its the borrowers at fault, but the WHOLE ECONOMY is based on lending, thus comes the continuous demand for growth, support of same, and a mindset persuasion campaign to make the borrowers happy to comply.

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My expectations are for a massive UK prime HPC. Lenders lend money. If buyers want to pay ever higher prices they do so out of their own free will.

Yes lending; which is why I expect this is a stage where idiot entitled buyers pay very high prices/BTL, before a big HPC and then LENDING IN VOLUME.

Where those oldies who borrowed £300K for machinery to fulfil new contract, and put their £800K house against it, are part of the MUST SELL hpc/market mover.

Death-wish: Sooner or later you're going to want it.. and the second-THE SECOND.. that happens, you know I'll be there. I'll slip in. Have myself a real good day.

The implied profits from a HPC are massive for me. WHOLE ECONOMY was based on lending for decades including into HPC early 90s that found out other entitled overstretchers.

I for one don't see the banks making money on all these £800,000 houses out there owned outright by bragging owners. Banks will want debt on them, and what better way of doing that than enticing (via advertising playing to their greed), BTL future... entitlement to fulfil new orders requiring £300,000 machinery and putting their £800,000 houses up as security.

Someone on this thread had their house repossessed and was made bankrupt into a real HPC, and it wasn't me - which was followed by volume lending by the banks to those in position to take advantage.

If you see these prices and go to viewings and apply for mortgages, and go through with buying, it's your own decision.

There is no innocence in this market. (Boohoo I was persuaded to pay £450K for a semi in North West mwahahah, or BTLed for my pension despite having £750,000 home owned outright and loads of money in bank... mwhahahaha)

(There is fair value in certain parts of US... but not SoCal.... San Fran etc)

Look at all these sad faces. Won't someone save them from their smugness. And how could new buyers know that prices could fall, setting ever higher prices? The victims of advertising outbidding others. We need to be ready to cut base rates to -10% to save house prices for the victims.

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Anyone who doesn't understand this is rather missing the point (and is blissfully ignorant of pre/post crash transactions & lending data)

As far as "why do some people celebrate rising house prices" - I don't think most people really think about it very much. Ofc some will do, especially those buying specifically for investment (Wilsons, btl landlords et al and the media whose incomes are directly related to property advertising revenues, land developers and so on), but most people who buy a house (I would posit) do so because they 1. want a home to live in 2. are fed up with short-term tenancies. 3. They can afford it (i.e. it is rational). At the time they buy a house they have no way of knowing what subsequent inflation will be over their lifetime, whether (or not) there will be a generational shift in bond yields, when the next recession will hit, what will happen to their job/career/circumstances and so on. Most of that is viewed ex-post & with a sizeable dose of hindsight bias and often only in nominal terms.

Not surprisingly, we find a sort of crude Keynesianism behind this philosophy. In this way of thinking, the point of homeownership is not to have shelter, but to acquire something that will encourage more consumer spending. In other words, the purpose of homeownership is to increase aggregate demand. The fact that you can live in the house is just a fringe benefit. This macro-obsession is part of the reason why the government has pushed homeownership so aggressively in recent decades.

So this is the Mises people blaming the Thatcherite obsession with smaller state/homeownership on Keynes?! Truly a perversion of reality. Rubbish article. Don't let this sort of nonsense get in your head or you'll remain uninformed.

Edited June 13, 2015 by R K

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Lending falls during the HPC, but then things stablise, and then can remain steady, than eeking out transactions via stimulus. Early 90s fresh lending into the HPC.. so many happy stories of FTB and those given opportunity to trade up. Then all the years that followed (except this time without HPI). Steady non-printed/stimulated transactions, for years and years Vs stimulus ridiculousness?

HOWARD MARKS: I'd say we should start getting interested in the asset class. Declines are not a reason to get worried. Declines are a reason to get excited. The investing public like things better at high prices than at low prices. The professionals like things better at low prices than at high prices.

MILLER: Now let me ask you.

RUHLE: Hold on, one more time. Say that one more time because it's such a good point.

HOWARD MARKS: Well the public, people who and who don't understand how investing works like things, feel better at things when they're at high prices, and lose confidence as the price falls. Warren Buffett says, I like hamburgers and I eat more of them when they go on sale. The investment professional who understands the intrinsic value of the things he's looking at, hopefully, likes things better when the price converges to or falls below the intrinsic value.

RUHLE: And in 2015 if there's one lesson you can teach, what do you want it to be in terms of investing?HOWARD MARKS: I can't say one, well to have reasonable expectations and to like things better as the prices fall.

From the man who suggests owners don't think about their housing wealth....

2009

I know several friends/acquaintances who have put houses up for sale over the last few months in the £500-800k region, who are expecting to have to wait 12 months + to sell. In one case they had an offer £50k under asking (which was I think £50k less than the agents recommended price anyway) and they rejected it. Another who put it on at what seemed a peak price to me, only to drop it by about £80k a few weeks later after little response and who has now decided not to sell (doesn't need to).

So, from what I've seen it appears to me (anecdotally) to be a mixed bag and where people aren't forced sellers they're just sitting tight. That tends to be in the better areas, in the less sought after areas I've seen quite a few fairly hefty price reductions over the last 12 months or so but still very few sales. So, I guess it's well worth going in low and seeing what response you get. But, from my recollection of the 90s crash, (and some on here don't share my recollection) the good properties in the prime areas, particulatly in the catchment areas of the top primary and secondary/grammar schools (Halebarns/Bowdon/Altrincham) kept their prices well, and in fact subsequently strongly outperformed many of the other localities over the next decade. I know, because I was trying to find one to buy at the time.

Other day

The funding taps appear to have opened recently. Even the developers locally appear to be getting funded. We're back to the £1m for the plot, £1m for the development £3m sales price scenario and some of the last lot haven't even sold yet.

In the £500-£700k sort of range am seeing lots of stuff locally shifting all of a sudden. A couple of doctors in their 30s. pre-school age kids, I'm acquainted with just bought in that range and they told me price wasn't an issue, it was location they were interested in.

Bottom line is the economy is running hotter than Carney either thinks or wants to admit to. Forget MMR, that's smoke & mirrors, they're going to remain behind the curve until the entire country has over-heated, by which time the more prosperous areas will be steaming (imo)

Sam, Bucks, 3 hours agoBought house in ,74 for 16k added extention about £8k now valued at £480k you do the maths?

I don't take my bearings from someone either retired or near retired, long wave HPI looking, who focuses on wage inflation coming up to meet house prices, and even then expects more HPI. Who thinks system will collapse with HPC, still leaving the owners as the winners... when system can now handle massive HPC... I'll be there.. I'll slip in.. have myself a really good day.

This is the accumulation phase. The buyers are those with strong credit histories, large deposits and/or cash. The boom phase will be when those factors above go into significant reversal, the banks are recapped, wages are rising strongly again and so on.......

That's the macro position. It's puzzling to find anyone who thinks it is otherwise frankly.

As for anecdotals, you can find those to suit any outcome. My sense is bids are getting closer to asking and more recent asking prices appear to have jumped. One friend selling has had competitive bidding from developers, which was a surprise, so they appear to be getting funding again.

It's difficult to see how this is any different to prior consolidation/accumulation phases that we've experienced in the early 80s or mid 90s.

The simplest way to find out what they think is to look at the nominal price level.

In terms of long run nominal wages and nominal house prices that tells you all you need to know. Will real wages and real house prices oscillate around that? Of course. But if you have nominal debt (mortgage), even during the 1 in 100 years depression we've had nominal price level has risen above central bank target rate. It ought not come as a surprise then that nominal house prices have also risen (and imo over the long run will continue to do so).

We know this isn't 1980. We're not coming off high inflation rates, and we know demographics aren't the same as they were post war, so another real terms bubble seems unlikely. Moreover in real terms houses, especially in London/SE are moderately overvalued still. They're clearly not 'cheap'. Against that, this government has done nothing to resolve the supply problem, in fact they've made it worse and wasted 5 years to boot. If a 1 in 100 year collapse in the banking system, and the longest depression in history isn't sufficient to prevent above target nominal price rises then I'd venture that nothing short of the Four Horsemen of the Apocalpyse is likely to do it. Even then, I'd still bet on a Carney put.

It's the 'savings' which are 'unreal' in a rapid uncontrolled deleveraging/liquidation.

What you are arguing for is for all the assets on all the banks' b.sheets to be sold at once, with NO liduidity provider in the market. In other words a currency collapse.

That's been tried in the past and it doesn't end well for 'savings'.

AS you rightly point out - the houses and all other physical assets would still exist. So anyone who owned a house would still own a house.

However, since every business in the country just went bust, there's no payment system, nobody has a job or an income anymore, the only people who really benefit are those who already owned their own homes.

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Because we have allowed ourselves to become a nation of lazy, idle, rentier scumbags; who are happily selling their grandchildren into a life of servitude, just to maintain a certain lifestyle for just a few more years... that's why!

now have we exactly ALLOWED ourselves to be, or have we been enticed,coerced and persuaded(or psychologically bullied) to be.subtle difference.

have we dropped our guard??..I would say so. we need to get streetwise again.

we need almost to be as discerning as our forefathers were regarding religeous scriptures.

then,did we agree that the pope was the sole authority on earth,and if we didn't follow him or give copious amounts of money or land for indulgences/absolution...and we would all be condemned to the pit of hell?

no.

that was his brand of after life insurance- if you didn't buy it,the heavies would come round and make you buy it(much like ISIS!).

that is not religeon,that is a mafia protection racket

THIS IS FAR MORE SUBTLE...and sophisticated marketing via crowd psychology and groupthink.

ie if you don't buy into what the priesthood are telling you over the box, you are a social misfit, and don't belong in the gang.

now there's a good boy, shut up, do as you are told and buy more tat.

most people don't like being alone.

..but there are one or two who quite frankly don't give a shit,and will tell it like it is.

Edited June 13, 2015 by oracle

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I celebrate my financial freedom. I don't own a home (in the UK) and can retire in my 40s (truly). If other people celebrate house price rises, fair play to them. However, I think there are more interesting things to celebrate in my opinion.

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now have we exactly ALLOWED ourselves to be, or have we been enticed,coerced and persuaded(or psychologically bullied) to be.subtle difference.

have we dropped our guard??..I would say so. we need to get streetwise again.

we need almost to be as discerning as our forefathers were regarding religeous scriptures.

then,did we agree that the pope was the sole authority on earth,and if we didn't follow him or give copious amounts of money or land for indulgences/absolution...and we would all be condemned to the pit of hell?

no.

that was his brand of after life insurance- if you didn't buy it,the heavies would come round and make you buy it(much like ISIS!).

that is not religeon,that is a mafia protection racket

THIS IS FAR MORE SUBTLE...and sophisticated marketing via crowd psychology and groupthink.

ie if you don't buy into what the priesthood are telling you over the box, you are a social misfit, and don't belong in the gang.

now there's a good boy, shut up, do as you are told and buy more tat.

most people don't like being alone.

..but there are one or two who quite frankly don't give a shit,and will tell it like it is.

Oh is that all.

"I wanted to join the gang.. I'm pure innocence paying £400K+ for an averaging semi in South Manchester."

Stop including me in the Victim-Excuses 'We'.

I want owners to drop dead in shock with the HPC that is to come... all these owners tallying up their massive gains over the decades.

Bought house in ,74 for 16k added extention about £8k now valued at £480k you do the maths?

They're not victims... they are market participants outbidding others.

Of course I'd like to buy a house, but I can see house prices are massively over-priced.... in a HPC I won't be crying at distress stories from latest round of buyers to have paid stupid high prices. "They were victims of sophisticated marketing." Come on... same crap was in 2008 and prices here doubled since then. It's a market.

Still with the victimhood for those buying £450K terraces - £700,000 semis. It's insane.

The funding taps appear to have opened recently. Even the developers locally appear to be getting funded. We're back to the £1m for the plot, £1m for the development £3m sales price scenario and some of the last lot haven't even sold yet.

In the £500-£700k sort of range am seeing lots of stuff locally shifting all of a sudden. A couple of doctors in their 30s. pre-school age kids, I'm acquainted with just bought in that range and they told me price wasn't an issue, it was location they were interested in.

Bottom line is the economy is running hotter than Carney either thinks or wants to admit to. Forget MMR, that's smoke & mirrors, they're going to remain behind the curve until the entire country has over-heated, by which time the more prosperous areas will be steaming (imo)

Anyone got any recent anecdotals about the local market?

Met a couple in Piccolinos last week who had just bought near Grove Lane, and said the competition was crazy. Think they said house eventually cost them £35k OVER the inflated asking price.

Totally crazy, house next to ours (5 mins walk to hale station) went on market Thursday, had 14(!) viewings at weekend, now sstc. They were asking 80% over 2005 purchase price, i suspect there was a bidding war and its gone for twice. 3 bed semi with tiny garden and no parking which is often a real problem on the road. Our landlord bought ours in 2013 for £360k I suspect he could turn a £100k plus profit selling now.

Colleague has similar stories about wilmslow. Seems that the most desirable parts of the north west may be competing with London

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"I wanted to join the gang.. I'm pure innocence paying £400K+ for an averaging semi in South Manchester."

Stop including me in the Victim-Excuses 'We'.

I want owners to drop dead in shock with the HPC that is to come... all these owners tallying up their massive gains over the decades.

They're not victims... they are market participants outbidding others.

Of course I'd like to buy a house, but I can see house prices are massively over-priced.... in a HPC I won't be crying at distress stories from latest round of buyers to have paid stupid high prices. "They were victims of sophisticated marketing." Come on... same crap was in 2008 and prices here doubled since then. It's a market.

Still with the victimhood for those buying £450K terraces - £700,000 semis. It's insane.

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People celebrate because if you bought a house for 250k in say kingston 12 years ago it would have earned 45k tax free during every one on those 12 years. I venture that the owner did not earn anywhere near 45k after tax in every one on the last 12 years (would need to be on 90k ish and someone on 90k ish would not, 12 years ago buy a house costing only 250k). I post this example on the Greater London thread.

I suspect that virtually no-one in London and SE could, on their current salary or salary prior to retirement, buy their house today. No one.

... and people believe this growth will continue and say how clever they have been with all their hard work. The other side of the coin is .... who will pay them their unearned equity?

And that's just 12 years back.... 8 years ago I was positioned for HPC, and read loads of the same old VICTIM stuff about owner side being innocents... campaigning for the reflation/almost doubling in values since then.

Go back 20-30-40 years.... houses bought for less than £10K, worth fortunes today.

The disconnect between the generations is quite staggering. Very few folks over the age of 50 or so will concede the obvious: they got (relatively) dirt cheap housing, education, equity and retirement costs in comparison to the youngsters … who they are counting upon to purchase them into paradise.

The buyers out there, and they are there.. pushing and falling over themselves... I want the house too but won't pay these prices (it's a market) are making their own decisions.

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Does anyone who bought a property in the last 10 years on an 80%+ mortgage feel free? Maybe some do, but I suspect most don't. Most who have a mega-mortgage tied around their neck will not feel free. They will feel burdened. They will feel like a hostage to fortune. They will hope all their ducks line up for then next decade plus. They will hope no HPC happens in the next decade plus. They will pay at least double (including interest) the price of their property at a time when property has been over-valued by several times. They are the greatest fools known to man, at the bottom of a super-pyramid.

Just remember - we're supposed to envy these people.

I have no debt. I have considerable savings. I've researched and lived-out a life abroad in Thailand, and know I could retire their happily in my 40s. I'm nothing special - but I feel free.